M A Sarsour, Waseem
(2021)
The Performance Of Modified Internal
Rate Of Return For Equity Investment
Assessment: A Markov Chain Approach.
PhD thesis, Perpustakaan Hamzah Sendut.
Abstract
Recently, investors’ interest in the stock market and its performance has arisen.
Investment and share prices are directly related, which makes the stock prices more
volatile, and thus the investment is more likely to be of high risk. Research in capital
budgeting has considered the application of the modified internal rate of return
(MIRR) as an alternative technique to the traditional valuation methods such as the net
present value (NPV) and the internal rate of return (IRR) to overcome certain limitations
raised from these conventional methods, especially the problem of multiple IRR.
However, literature on the MIRR method has some limitations including failing to take
into account the share issuance function such as share split and consolidation as well
as valuing the performance of an investment project in the long-run using the Markov
chain based on the MIRR strategy could be problematic in case of insufficient sample
size. Furthermore, the application of the Markov chain in valuing an investment project
in the long-run was based on stock prices, NPV, and IRR. Combining these issues, this
thesis aims to develop a long-term investment in terms of adjusting the MIRR strategy
while considering the share issuance and reinvested dividends into account. Furthermore,
this thesis implements Markov chain simulations to obtain the sufficient sample
size required to assess the performance of an investment project using the Markov
chain model based on the MIRR strategy. The proposed methods are illustrated using
stock market data of public listed companies in the Malaysian Product Services and
Industrial sector (MIPS) and compared to the stock prices method for robustness
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